Why Real Estate is a Great Investment for 2009

Real estate expert Stephen Chiulli wrote a great article on why real estate is a great investment for 2009. Of course we agree! Here is a summary of his article:

Lower Home Prices: Housing prices have fallen to more affordable levels, in some markets moving back to 2003 prices. People looking to buy a home for long term use or investment have a better opportunity to own a home at a very good price. Lower home prices expand the number of people able to afford to buy and own home, creating a greater demand.

Historically low interest rates: 30 year fixed mortgage rates are nearing 5 percent and are expected to move to 4.5 percent or lower. Compared to 6.25 percent rates seen earlier in 2008, a rate of 4.5 percent would mean a monthly savings of $218 on a $200,000 mortgage. Lower monthly costs will keep people in their homes, reduce the number of homes on the market and lead to a stabile housing market.

Foreclosure Mitigation: The Federal government and private lenders are instituting plans to stem the tide of foreclosures by renegotiating mortgage payments, possibly reducing both interest and principal, to help people keep their homes. Successful foreclosure mitigation plans will reduce the number of homes on the market and help stabilize housing prices.

Affordability Index: National Association of Realtors findings show that housing affordability has improved dramatically, moving from 106 to 142. The study found that income rose from $57,612 in 2006 to $60,840 in 2008 and the percentage of income dedicated to pay a mortgage dropped from 23.6 percent to 17.6 percent.

Tax Incentives: Congress is considering tax incentives of 10 percent of the purchase price (up to $22,500) to offset the cost a home purchase. This tax incentive would be directed at first time home buyers, although there are discussions to broaden the incentive to include all home buyers in 2009.

FHA: There is a strong push to expand the mortgage market and spur home ownership. FHA guidelines will be broadened to allow for lower down payments (as low as 3% of value), lower borrower credit scores and reduced required documents in an aim to have more people qualify for a mortgage.

Mortgage repurchase: The Federal Reserve has announced it will purchase $500 billion dollars worth of mortgages from banks. This program is in addition to the expanding role and capital of Fannie Mae and Freddie Mac. Implementing this program will lead to greater availability of mortgage funds and more open lending standards.

Housing Inventories: Housing inventories have been moving lower in recent months, dropping by 350,000 units in the past three months alone. Even in a “slow” year like 2008, there were about 4.5 million homes sold nationally. OK, it is not the 7 million homes sold in 2005 but it is not zero either. New home starts have fallen to an annual rate of 625,000, nearly one-third of their peak in 2005.

Pent up demand: There is growing demand to purchase real estate from people who have been sitting on the side lines waiting for the dust to settle. As the market settles down there will be a growing number of qualified buyers looking to make a home purchase in 2009.

Employment: Consumer confidence is critical to any market improvement. The enormous stimulus package being considered and most likely implemented will bring more jobs. More importantly, a stabile jobs market will bring back consumer confidence and will spur spending. As a lagging indicator, the unemployment numbers will not reflect the improving economy early in 2009. Companies are slow to respond to change and the stimulus package will take months to be felt in the general market place. However, the later quarters of 2009 will show marked improvement in employment and consumer confidence.

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